How Jane Street allegedly manipulated Bank Nifty and profited Rs 36,500 Cr

In July 2025, India’s market regulator SEBI shook the global trading world by banning Jane Street, one of Wall Street’s most elite and secretive trading firms from operating in Indian securities markets. The move came after SEBI accused the firm of manipulating India’s high-volume derivatives segment, specifically targeting trades in Bank Nifty options. But what makes this case truly fascinating is how it began not with a tip-off or whistle blower, but with a lawsuit filed by Jane Street itself.

In early 2024, Jane Street sued a former employee who had moved to Millennium Management, another major global hedge fund. The lawsuit, filed in the U.S., alleged theft of proprietary trading strategies, a rare peek into the opaque world of high-frequency and algorithmic trading. Court documents referenced Jane Street's complex trading tactics, and that caught the attention of SEBI. The Indian regulator, already wary of unexplained price movements in Bank Nifty options, began a closer look and soon discovered far more than it bargained for.

SEBI’s surveillance system had been flagging unusual expiry-day behaviour particularly sharp, last-minute moves in the Bank Nifty index on Thursdays, when weekly options expire. These sudden swings consistently benefited a handful of trading accounts. And after months of investigation, SEBI concluded that Jane Street was at the center of it.

According to SEBI, Jane Street deployed a sophisticated two-legged strategy. First, it would push prices by placing large buy orders in Bank Nifty stocks early in the day, raising the index level. At the same time, it would take short positions in Bank Nifty options, essentially betting that prices wouldn't fall. Then, during the crucial final minutes of expiry, the firm allegedly executed large trades to manipulate the closing price, a controversial tactic called “marking the close.” This ensured that the options expired at levels that maximized its profits. The numbers were staggering. SEBI estimated Jane Street raked in over ₹43,000 crore from these trades, with net profits of around ₹36,500 crore between January 2023 and March 2025. This was not a one-off event, the same strategy was allegedly repeated across at least 18 weekly expires.

While Jane Street profited handsomely, India’s retail investors paid the price. In FY24 alone, Indian retail traders reported over ₹1 lakh crore in losses from derivatives, many unknowingly caught in the whiplash of expiry-day volatility. With growing public concern and investor vulnerability, SEBI viewed Jane Street’s actions as a serious breach of market fairness and transparency. On July 3, 2025, SEBI issued an interim order banning Jane Street and its India-linked entities from participating in the Indian securities markets. It also froze approximately ₹4,843 crore in suspected illegal gains. The order marked one of the strongest regulatory actions ever taken against a foreign firm in Indian financial history.

Jane Street, for its part, strongly denied any wrongdoing. It claimed it was only conducting “index arbitrage”, a standard and legal trading strategy used by firms globally. It acknowledged it had been in dialogue with SEBI and the National Stock Exchange since February 2025 and had altered its trading patterns in response to concerns. However, SEBI deemed these changes superficial and maintained that the underlying strategy was still manipulative. Jane Street has now taken its case to the Securities Appellate Tribunal (SAT) and is preparing for a legal battle in India. The fallout from this case has reverberated across the global trading world. Other major firms such as Millennium, Citadel, Optiver, and IMC, all of which have growing operations in India, are now reviewing their strategies. While India has welcomed foreign capital, SEBI’s message is unmistakable: if you exploit the system, you’ll be shown the door, no matter who you are.

Beyond the courtroom, the case is also fuelling a broader conversation around the future of India’s fast-growing but retail-heavy derivatives market. Weekly options, social media-fueled trading, and zero-cost platforms have democratized access but also created risks. Many retail traders are entering highly complex instruments without understanding how global algorithmic strategies can influence price movement in seconds. SEBI is now expected to tighten rules on expiry-day trading, algo strategy disclosures, and intraday position limits. Investor education campaigns are also being considered, to ensure retail participants understand the real risks of derivatives trading. Some fear that SEBI’s aggressive move might deter global firms. But many believe the opposite. Strong regulation ensures market integrity, boosts long-term investor confidence, and builds a fairer playing field, especially in an environment where trust is everything.

The Jane Street-Millennium dispute, intended to protect trade secrets, ended up lifting the veil on something much bigger and may have accidentally triggered one of the largest regulatory actions in India's capital markets. A India’s stock markets rise in global stature, the balance between innovation, speed, and ethics will only grow more delicate.

The saga may be far from over but one thing is clear: in the world of ultra-fast trading, even a split-second edge can bring billions in profit or spark a regulatory firestorm that changes everything.

In response to SEBI’s interim order, Jane Street has complied by depositing ₹4,844 crore into an escrow account, as directed by the regulator.

Want to read more?

Subscribe to finsightsbysquareleague.com to keep reading this exclusive post.

Subscribe Now